JOINT VENTURE & SHAREHOLDERS' AGREEMENT

       10.

CONDUCT OF BUSINESS

       16.

PRE-EMPTIVE RIGHTS

       17. 

     NEW SHAREHOLDERS

       27.

REMEDIES

       28.

SEVERANCE

       29.

GOVERNING LAW & JURISDICTION

       30.

ENTIRE AGREEMENT

       32.

FURTHER ACTS

33.

COSTS

34.

NON-PARTNERSHIP

39.

SURVIVAL OF RIGHTS, DUTIES AND OBLIGATIONS

(1)

JP FAS Korea Ltd. (Korean Company Registration No. 110111-3890351) a private company with limited liability duly incorporated and existing under the laws of Republic of Korea, and having its place of business at 272-31,Nonhyun-Dong,Kangnam-Gu,Seoul Korea (in this Agreement called FAS Korea),

AND

(2)

FIRST AMERICAN SCIENTIFIC CORPORATION , a USA a public company with limited liability duly incorporated and existing under the laws of the Stae of Nevada, USA and having its place of business at # 26 – 762 Vanyage Way, Delta BC, Canada, V4G 1A6 (in this Agreement called “FASC”) of the last part.

(A)

FAS Korea is in the business of sourcing, developing and acquiring new technology for application in various industries in Korea

(B)

FASC is an equipment manufacturer and provider of turn-key systems and is the creator and owner of a patented grinder-dryer technology called the “KDS Micronex Reduction System” (in this Agreement called “ KDS Micronex machine).

(C)

The parties have agreed to collaborate with each other to carry on business in the area of selling and marketing the KDS and to facilitate the same, have agreed to establish a joint venture company in Korea .

(D)

The rights as shareholders of the joint venture company shall be regulated by the provisions of this Agreement and the Memorandum and Articles of Association of the joint venture company.

(E) The parties have agreed that if any conflict be found between this Agreement and Technical License Agreement, the latter will govern.

OPERATIVE PROVISIONS:-

In this Agreement, unless the context otherwise requires, the following words and expressions shall have the following meanings respectively:-

“Act”

means the Companies Act of Korea;

“Affiliate”

means any company which is controlled by a Shareholder or which is controlling or under the same control as a Shareholder. For this purpose, control shall mean the direct or indirect ownership of 50% or more of the shares entitled to vote;

“Annual Budget”

means the annual operating budget and any other financial and investment plans approved by the Board under Clause 14.1 and as may be amended from time to time;

“Articles”

means the Articles of Association for the time being of the Company;

“Auditors”

means the auditors for the time being of the Company;

“Board”

means the board of directors for the time being of the Company;

“Business”

has the meaning ascribed to it in Clause 5.2 and includes such other business as may be authorised pursuant to the Business Plan;

“Business Day”

means a day except a Saturday, Sunday or public holiday (gazetted or ungazetted and whether scheduled or unscheduled) on which banks are open for business in Korea.

“Business Plan”

means the business plan of the Company for a specified period, which business plan shall specifically:-

       “Chairman”

means the chairman of the Board for the time being;

“Chief Executive Officer”

has the meaning ascribed to it in Clause 11.1;

“Company”

means the private company with limited liability to be established by the Parties in Korea to undertake the Business, as more particularly referred to in Clause 4;

“Debenture”

has the meaning ascribed to it in section 2 of the Securities Commission Act Korea;

“Directors”

means the directors for the time being of the Company and the expression “Director” shall mean any of them;

“Fair Market Value”

means the value of the Company agreed by the Shareholders, provided that if the Shareholders cannot agree, then the Shareholders will jointly select an independent major international accounting firm, or if the Shareholders fail to so jointly select, the Auditors, to independently determine and certify the value of the Company based on the Company’s net tangible and intangible assets on a willing seller-willing buyer basis;

“FASC”

means First American Scientific Corporation

“Information”

means confidential information relating to a Party or its business made available by it to any other Party (or its representatives), whether before or after this Agreement is entered into, for the purpose of considering, advising in relation to or furthering the Business or for the performance of this Agreement (and any information or analysis derived from such information) and shall include all information relating to any investment or potential investment and all reports, reviews and strategies prepared for the Company in respect of its business;

“Initial Budget”

means the budget as annexed hereto to Appendix 3 detailing the working capital requirements for the Company for the period of 1 year from the date the Company commences operations. For the purposes hereof, the Company “commences operations” on the date the Company places its first order for a KDS Micronex Machine from FASC for the demonstration plant in Korea;

“KDS Micronex Machine”

means the micronizing machine designed, the specifications of which are annexed hereto to Appendix 2, and includes all improvements thereto made by FASC from time to time;

“KDS System”

means the patented grinder-dryer micronizing technology called the “KDS Micronex Reduction System” utilised in the KDS Micronex Machine;

“Ordinary Shares”

means the ordinary shares of par value $50.00 USD each in the share capital of the Company (subject always to any subdivision of the same), and the expression “Ordinary Share” means an ordinary share in the capital of the Company;

“Parties”

means collectively FAS Korea and FASC and any other person becoming a party to this Agreement and the expression “Party”   shall refer to any one of them as the context dictates;

“Pro Rata Share”

means the ratio determined, immediately prior to a proposed transfer, by dividing (i) the number of Ordinary Shares held by the particular Shareholder (as a numerator) by (ii) the total number of Ordinary Shares held by the Shareholders excluding the number of Ordinary Shares held by the transferor Shareholder undertaking the proposed transfer (as a denominator);

“Revised Pro Rata Share”

means the ratio determined, immediately prior to a proposed transfer, by dividing (i) the number of Ordinary Shares held by the particular Shareholder (as a numerator) by (ii) the total number of Ordinary Shares held by the Shareholders excluding (a) the number of Ordinary Shares held by the transferor Shareholder undertaking the proposed transfer and (b) the number of Ordinary Shares held by the Shareholder(s) who have not accepted their full entitlement of their Pro Rata Share (as a denominator);

 “Secretary”

means the company secretary for the time being of the Company;

“Shares”

means the shares (whether ordinary or preferred) in the share capital of the Company, and the expression “Share” means a share in the capital of the Company;

“Shareholders”

means the holders of Shares in the capital of the Company and the expression “Shareholder” means a person who is registered as a holder for the time being of Shares in the capital of the Company and which person is a party to this Agreement;

“Subsidiaries”

means any corporation which by virtue of section 5 of the Act is deemed a subsidiary of the Company;

“Technology”

means any and all technology, technical know-how, engineering techniques, experience, data, specifications, processes, drawings, designs, programs, software, hardware, database, proprietary rights, know-how and other material including all improvements thereto and adaptations thereof;

“US$”

means the lawful currency of the United States of America.

3.1

The purpose of this Agreement is to set forth the terms and conditions of the agreement and understanding reached between the Parties in respect of the Company and the Business.

3.2

In consideration of the mutual agreements and undertakings set out herein, the Shareholders have granted the rights and accepted the obligations hereinafter appearing.

4.1

The Parties agree that JP FAS Korea Ltd., a private company with limited liability under the laws of Korea, will be the Company used to undertake the business proposed herein.

4.2

The Parties propose to rename the Company as “First American Scientific Korea Ltd )  or in the alternative as “FASC (Korea) Ltd  In the event the Registrar of Companies of  not approve either of these names, the Parties shall mutually agree in good faith on an alternative suitable name of the Company.

5.

BUSINESS OF THE COMPANY

5.1

The Business shall be conducted in the Company’s best interests on sound commercial principles and in accordance with good business practice and subject to the provisions of this Agreement, the Memorandum and Articles of Association and any applicable laws.

5.2

The Shareholders agree that the business of the Company shall include the following (in this Agreement collectively called “ the Business ”):-

5.2.2

provision of servicing and maintenance for the KDS  in Korea

5.2.3

deleted

5.2.4

research and development of the KDS System and the KDS Micronex Machine and other micronizing technology.

5.3

The Parties agree that all commercial transactions between (i) the Company and (ii) any Shareholder or its Affiliate, shall be at arms-length and bona fide for value and any such transactions shall not be on terms or conditions more favourable than would be extended to a non-related person.

5.4

The Business of the Company other than as may be specifically referred to in this Agreement shall be detailed from time to time in the Business Plan.

5A.

WARRANTIES AND REPRESENTATIONS

5A.1.1

it is validly formed and existing under the laws of the country of its incorporation;

5A.1.2

it has the power and authority to enter and lawfully perform this Agreement;

5A.1.3

it has taken all necessary actions and passed all necessary resolutions or taken all necessary steps, as the case may be, to authorise the entry into and performance of this Agreement including for the purposes of undertaking the obligations contemplated by this Agreement;

5A.1.5

the execution, delivery and performance of this Agreement, will not exceed the power granted to such Party by or violate the provisions of:-

(a)

any law or regulation or any order or decree of any governmental authority, agency or court to which it is subject; or

(b)

its memorandum and articles of association or other constitutive documents; and

5A.1.6

it is not and will not be entitled to any immunity from suit or other legal process in any proceedings in any jurisdiction.

6.1

Subject to Clause 6.2 and Clause 6.3, within 14 Business Days from the date of this Agreement or from the date the Registrar of Companies of Korea approves the new name of the Company, whichever date shall be later, ordinary stocks will be distributed as below to each party

6.2

The consideration payable by Shareholer 1 and 2 for their respective portions of the Initial Subscription shall be cash

6.3

The consideration payable by FASC for its portion of the Initial Subscription shall be a non-cash consideration, through the grant by FASC to the Company of an exclusive licence for the manufacturing, use, marketing and sale of the KDS Micronex machine  in Korea which licence is valued at USD$250,000

7.

SHARE CAPITAL OF THE COMPANY

7.1

The issued and paid-up share capital of the Company shall be in the proportions referred to in Clause 6.4 and unless otherwise altered pursuant to this Agreement, the Shareholders' equity ratio in the Company so reflected shall be maintained at all times as aforesaid.

7.2

If there is any increase in the paid-up share capital of the Company, each Shareholder shall have the pre-emptive right to subscribe for such further Shares in the applicable proportions referred to in Clause 7.1.

8.1.1

In addition to the required capital contributions in Claise 6.1, SHAREHOLDER # 1 and SHAREHOLDER # 2 agree to provide cash advances as needed to the Company, from time to time, up to enable the Company to meet its working capital requirements in accordance with the Initial Budget. Such advances shall be provided on an interest free basis and shall be repayable by the Company to SHAREHOLDER # 1 or # 2 respectively once the Company achieves positive cashflow.

8.1.2

that they will provide the expertise and market links for the sale of the KDS in Korea to assist in the development and expansion of the Business in Korea

8.2.1

that it will provide the Company with the necessary Technology and expertise in the use and operation of the KDS Micronex Machine;

8.2.2

deleted

8.2.2

to assist in the utilization of the technology to the Company in respect of the KDS System on terms and conditions to be agreed by the Parties; and

8.2.3

to assist in the development and expansion of the Business.

8.3

The Parties agree that the Company shall:-

8.3.1

pay to FASC a royalty of $ 15,000 USD for each KDS Micronex Machine manufactured and sold in Korea.

8.3.2

that SHAREHOLDER # 1 and SHAREHOLDER # 2 will be entitled to be paid a commission by the Company for each KDS Micronex Machine sold in Korea, the amount of which commission shall be mutually agreed between the Parties.

8.5

As a material inducement to SHAREHOLDER # 1 and SHAREHOLDER # 2 to enter into this Agreement, FASC hereby represents and warrants to SHAREHOLDER # 1 and SHAREHOLDER # 2 that:-

(i)

FASC is the owner of the patenetd KDS Micronex Machine and the owner of the KDS System patents

(ii)

it is not aware of any unsatisfied judgments, orders or writs of execution that may affect the Intellectual Property Rights in and to the KDS System and the KDS Micronex Machine;

(iii)

it has not granted any rights to any person for the manufacture, use and sale of the KDS Micronex Machine in Korea;

(iv)

the KDS System, the KDS Micronex Machine and all Intellectual Property Rights subsisting respectively therein do not and will not infringe the Intellectual Property Rights of any person and its exploitation does not and will not require any consent from, nor the making of any payment to, any person other than FASC;

(v)

the KDS System and the KDS Micronex Machine and any Intellectual Property Rights subsisting respectively therein have not been the subject of a claim by a third party based on the infringements by the KDS System and the KDS Micronex Machine on that party's Intellectual Property Rights prior to the date of this Agreement, and no third party has threatened or is threatening any infringement of this kind or has made or is making any claims or has commenced or threatened to commence, or is commencing or threatening to commence, any proceedings in relation to the KDS System and/or the KDS Micronex Machine; and

(vi)

the following applications for the registration of patents in respect of the KDS System and the KDS Micronex Machine have been duly filed with the relevant bodies:-

(a)

Patent application [No. 10/127,662] filed on 23 April 2002 with the United States Patent and Trademark Office. Application approved and patent [No. 6,55,167 B2] has been granted on 2 December 2003;

(c)

Patent application [No. 197677] filed on 23 November 1998 with the United States Patent and Trademark Office. Application approved and patent [No. 6,024,307] has been granted on 15 February 2000;

Canada

(e)

Patent application [No. 2,344,511] filed on 19 April 2001 with the Canadian Intellectual Property Office;

Europe

Korea

9.

OPERATIONS OF THE COMPANY

9.1

The Shareholders agree to exercise their respective rights as a shareholder of the Company and (insofar as it lawfully can) to ensure that:-

9.1.1

the Company performs and complies with all obligations on its part under this Agreement and complies with the restrictions imposed upon it under the Articles; and

9.1.2

the Business is conducted in accordance with law, sound and good business practice and the highest ethical standards.

9.2

The Shareholders acknowledge and agree that unless and until the Board decides otherwise, the business of the Company shall be confined to the activities defined as Business in this Agreement.

10.1

The affairs of the Company shall generally be managed by a chief executive officer (in this Agreement called “the Chief Executive Officer”), however, during the first 5 years after the date of signing this agreement, unless otherwise agreed by 100% of the shareholders,  the ordinary activities of the company will be managed jointly by SHAREHOLDER # 1 and SHAREHOLDER # 2 who will report monthly the members of the board.

10.2

The Chief Executive Officer shall, in accordance with the directions and policies of the Board, be responsible for the day-to-day management and operations of the Company. The Chief Executive Officer shall act in accordance with the directions of the Board and shall be responsible for such matters as shall be delegated to him by the Board.

10.3

Commencing after the end of year five, each Party shall, unless otherwise agreed by 100% of the shareholders, have the right to nominate the candidate for the office of the Chief Executive Officer. Notwithstanding the right to nominate such candidate, each Party shall consult the other Parties prior to nominating such candidate and submitting his candidature to the Board for approval. The appointment of the Chief Executive Officer shall require the approval of the Board.

11.

BOARD OF DIRECTORS

11.1

Constitution of Board : The Parties agree that the Board shall at all times consist of a maximum of Four (4) Directors, of which SHAREHOLDER # 1 and SHAREHOLDER # 2 shall nominate one (1) each and FASC shall nominate two (2) Directors.

11.2

Removal of Directors : The right to nominate the Directors under Clause 11.1 shall include the corresponding right from time to time to remove any nominee or nominees and to substitute for another or others in his or their place.

11.3

Appointment and Removal : Any appointment or removal of a Director as aforesaid shall be made in writing and be signed by or on behalf of the relevant Shareholder and shall be delivered to the registered office for the time being of the Company. Subject to Clauses 11.1 and 11.2, in order to give effect to the provisions of this Clause 11, each of the Shareholders shall exercise all its voting rights for the time being in the Company to enable such Director(s) to be appointed. Notwithstanding anything else to the contrary herein contained, a Director shall cease to be a Director of the Company (and the appointing Shareholder shall forthwith remove such Director) if such Director:-

(iii)

is otherwise prevented from being a director due to any statutory disqualification; or

(iv)

the Shareholder appointing such Director shall cease to hold any Shares in the Company.

11.4

Alternate Director : A Director shall be entitled at any time and from time to time to appoint any person to act as his alternate and to terminate the appointment of such person and in that connection the provisions of the Articles shall be complied with.  Such alternate director shall be entitled while holding office as such to receive notices of meetings of the Board and to attend and vote as a Director at any such meetings at which the Director appointing him is not present and generally to exercise all the powers, rights, duties and authorities and to perform all functions of his appointor in his absence. Further, such alternate director shall be entitled to exercise the vote of the Director appointing him at any meetings of the Board and if such alternate director represents more than one Director, such alternate director shall be entitled to one vote for every Director he represents.

11.5

Chairman: The Chairman of the Board shall be appointed by the Board. If the Chairman is not present at any meeting of the Board or Shareholders, the Directors present shall elect one amongst their number to act as the presiding Chairman for the purpose of the meeting. The Chairman shall not have a casting vote.

11.6

Quorum : All meetings of the Board shall be convened and conducted in accordance with the provisions of the Act and the Articles. The quorum for any meeting of the Board shall be three (3) Directors or their alternates present in person, provided that one of which shall be a Director nominated by SHAREHOLDER # 1 and one a Director nominated by FASC, present at the commencement of and throughout the meeting. If a quorum is not present within 30 minutes from the time appointed for the holding of a meeting of the Board when it is first convened, the meeting shall be adjourned to the same day on the week next following at the same time and place. At such adjourned meeting, any two (2) Directors or their alternates present in person shall form a quorum. If at such adjourned meeting such quorum is not constituted within thirty (30) minutes of the time appointed for such adjourned meeting, the said adjourned meeting shall be dissolved. Notice of each adjourned meeting shall be given to all Directors. The agenda of an adjourned meeting shall be the same as the agenda of the original meeting which  adjourned.

11.7

Meetings : Meetings of the Board shall be held at such times as the Board shall determine. Provided that, unless otherwise agreed by all the Directors, a meeting of the Board shall be held at least once every quarter and more frequently, if required. Not less than fourteen (14)   days notice (or such shorter period (not less than seven (7) days) of notice in respect of any particular meeting as may be agreed by all the Directors) of each meeting of the Board specifying the date, place and time, of the meeting and the business to be transacted thereat shall be given to all Directors. At each meeting of the Board, each Director shall have the right to one (1) vote. The Directors present at such meeting must exercise their voting rights and cannot abstain from voting, except where required by law or by any rules and regulations governing the conduct of the Business. Subject to Clause 12, a resolution shall be deemed to have been adopted by a simple majority vote in favour of the resolution by the Directors present at the meeting, in person, or by his alternate .

11.8

Resolutions in writing : A resolution in writing circulated to all the Directors for the time being and signed or approved by a majority of the Directors for the time being by facsimile shall be as valid and effectual as if it had been passed at a meeting of the Directors duly convened and held. Any such re